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Let’s not repeat the same mistakes that led to the housing bubble

A recent New York Times article entitled “Down Payment Rules Are at Heart of Mortgage Debate” reported that “lenders and consumer advocates — rarely on the same side of the issue — are now cautioning against down payment requirements.” Cited as justification was a study by the Center for Community Capital at the University of North Carolina at Chapel Hill. It found that only 2,500 borrowers had suffered a foreclosure out of 46,000 low-income homeowners who received traditional 30-year, fixed-rate mortgages with a small down payment. I‘ll call those 2,500 borrowers and raise 3.1 million families. Since 1975, one in eight of the 25 million families getting an FHA insured loan suffered a foreclosure from their 30-year, fixed-rate mortgages with a small down payment. The dashed American dreams of these families trumps the 2,500 in the UNC study. America’s homeowners have already experienced the horrific impact of the government’s successful effort to loosen underwriting standards that drove the boom that went bust. Let’s not repeat the same mistake.

Based on FHA’s 80 years of experience with tens of millions of loans, the solution is clear. Balance the size of down payment with a loan term ranging from 15- to 30-years along with a borrower’s willingness and ability to pay. Combine with best practices like risk sharing by originator/servicers and the nightmare at FHA can be put behind us.

Discussion: (6 comments)

I knew we as American’s were often not the smartest people, but to repeat the mistakes of the very recent past is a whole new level of stupid.

Some of this is the well intentioned desire for all American’s to afford a house – that is the American dream. A larger part of the problem is DENIAL of what actually caused the last housing bubble. So many of the dumbest American’s insist the whole mess was the result of greedy banks. If we just beat up the banks, then this would never happen again. While banks did make money on these mortgages, and originators did encourage consumers to pad their earnings, it was also the greed of the consumers that drove these banks to make those loans. The American consumer has little will power and discipline and banks took advantage of this.

We need to have rules that require proper collateralization of housing loans. Perhaps we should require that the originator of the loan provide a guarantee if any information in the loan package is fraudulent, they’re liable.

The upshot here is that not everyone can afford everything and we need to be fine with that. We don’t need to weaken the rules of business just so people can appear to afford a house.

Government is the problem. Government meddling in the mortgage market, which is not a constitutionally mandated function of the federal government, has led to the destruction of the housing market, among many other areas of our lives that they have no business in. Fanny and Freddie are both unconstitutional institutions that were specifically designed by liberal to ‘distribute housing’ to the sheeple. It failed, and will continue to fail. Furthermore, it was Dodd/Frank that forced the private banks to also hand out ‘government backed’ loans to the so-called poor, and if they didn’t they would be ‘attacked’ by the EEOC and other federal agencies for ‘racism’. Not a single bank on the planet would have made these loans without a government guarantee that they would be repaid when the loans went bad, so the scum politicians that wrote these laws put the entire burden of the crash on the taxpayers. This may be one of the greatest thefts of all history, and all of it was orchestrated by GOVERNMENT, and CORRUPT POLITICIANS.

It’s not about down payments or the fixed terms of the loan. It’s ALL about the fact that Fannie, Freddie, HUD, FHA and the Government, ALL enabled and encouraged banks/mortgage companies/anyone to make fraudulent loans – those loans created and designed to “blow up” in 3,5,7 years – intentionally causing defaults and massive foreclosures. These “lenders” stopped “underwriting” and threw fiat credit at anyone for any home at any price. THAT’s what bubbled prices, then collapsed ruining owners, home values and now our entire economy, bankrupting developers, builders, retailers, and severely damaging our cities, states, pension funds. It’s still uncertain this country can or will survive for the people. Have you looked at the tent cities…??

I am seeing more people sitting under trees and on the side of the roads again, women with babies and toddlers. You can see the saddness and depression on thier faces. You know they are homeless. I thought we had seen the last of this but here we go again and how bad will it be this time. Where is the help, the charity, the leaders to lead us out of this misery? Where is the Kickstarter who can come up with a solution to the new homelessness and joblessness too. Why not communities where the homeless and jobless are taken in and they can work in the greenhouses and gardens to provide fresh food for sale to the public to help offset the community expenses? Someone take it from here and run with it, please! America is crying for help!

The cycle of low or no down payment loans is an item that is born of the special interests that need them in order to stay in business. Yes, consumers are ignorant about the long term implications of home ownership responsibilities. They need home buyer education classes to give them the facts before they buy. But the NAR, NAHB, FHA, HUD, and a wide variety of so called “affordable housing advocates” need this gravy train to make a living, so they stop at nothing to insure that the party never ends.

Credit Rating, combined with back ratio, is the main factor that determines chance of foreclosure….if you don’t have a history of paying on time, and you’re stretching too much, you will be the first to walk away. There are legions of us that were in the same fax – we took in roommates and got 2nd & 3rd jobs so that we would not have to foreclose. The main difference is whether you care about your credit or not. The fact that you can foreclose, and then buy another home aga